Virgin Galactic Holdings (SPCE -1.54%) achieved a major milestone earlier this year when it finally launched space tourists into orbit. But the company's challenges didn't end there, and the grim realities of the business have set in in the months since that launch.
Shares of Virgin Galactic were down about 8% at 10 a.m. ET Wednesday on word the company is cutting workers as it tries to conserve cash and push toward profitability.
Virgin Galactic is going into survival mode
Virgin Galactic was one of the original SPAC stocks, going public in 2019 to great fanfare with a plan to routinely shuttle space tourists into orbit. The company faced several engineering and pandemic-related delays in the years since but has finally established a regular launch cadence and is finally generating revenue.
The question now is when these flights will become profitable. Virgin Galactic is trying to operate as leanly as possible. Late Tuesday, the company notified all employees of a "strategic realignment" and related workforce reduction.
Details of the layoffs were not disclosed. Virgin Galactic is expected to release third-quarter results after markets close on Wednesday, and management will share additional details about the cuts during the post-earnings conference call.
Is Virgin Galactic a buy heading into third-quarter results?
In August, Virgin Galactic said it expected to generate about $1 million in revenue and burn through about $120 million in cash in the third quarter. Similar cash burn is expected in the final three months of 2023.
The long-term goal for Virgin Galactic is to develop its new Delta vehicle, a spacecraft capable of more frequent launches at a lower cost compared to its current SpaceShipTwo vehicle. Delta, in theory, would allow the company to launch at a cadence that would allow it to turn profitable.
But the space business is hard, and access to capital is more difficult today than it was a few years ago due to higher rates. The streamlining appears designed to conserve as much cash as possible to put toward Delta development.
The company had about $980 million in cash at the end of the second quarter.
Given the challenges, Virgin Galactic remains a moonshot. The layoff news was a reminder of the severe challenges the company faces from here.